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Markets Pulse

PayPal Slows for eBay

By Greg Bensinger

EBay Inc. continued its turnaround with double-digit increases in revenue and profit for the first quarter, but sales growth slowed from last year’s breakneck pace and the company forecast a weaker-than-expected outlook.

The San Jose, Calif., company posted a 19% profit jump and a 14% revenue increase for the quarter, driven by sales in its marketplace division, which includes its main eBay.com site. Sales at the marketplace business rose 13% to $1.96 billion, an increase from the 11% pace it set a year earlier.

EBay also said it drew 3.9 million new users to its namesake site as it has worked to make it more attractive for buyers and sellers looking for an alternative to Amazon.com Inc.

But eBay’s 14% first-quarter revenue growth was down from 29% a year ago and 21% for all of 2012, especially as its PayPal payments unit experienced slowing growth. After posting revenue increases of as much as 32% a quarter last year, PayPal’s revenue rose 18% to $1.55 billion this time around.

PayPal faces increasing competition from payments processors, including Amazon, Square Inc., Intuit Inc. and a host of startups, which are all jockeying for a piece of consumers’ wallets.

“The payments growth is the slowest we’ve seen in some time,” said Mark Mahaney, an RBC Capital Markets analyst, who called the results “unexceptional.”

The slowing growth was coupled with a forecast that was below analysts’ expectations. EBay said it expects net income of 46 cents to 48 cents and revenue of $3.8 billion to $3.9 billion in the second quarter, below analysts’ expectations of $3.95 billion in revenue. Excluding items, the company expects second-quarter earnings of 61 cents to 63 cents a share, which compares with the 66-cent estimate of analysts.

Investors sent eBay’s stock down nearly 3% in trading after the regular market close to $56.10. EBay’s shares have risen 10% this year.

Under Chief Executive John Donahoe, eBay has worked to shore up its main e-commerce site by emphasizing highly rated sellers and new fixed-price products to help shed its image as an auction site for collectibles. Mr. Donahoe last month set the goal of nearly doubling eBay’s active user numbers by 2015 and driving $300 billion of sales, compared with $175 billion last year.

Starting this month, eBay is simplifying its sellers’ price structure, phasing out the tiered commission and listing-fees for many items in favor of a flat sales fee based on an item’s category, closely resembling Amazon’s structure. Sellers will be able to list many items free of charge, a first for the company.

EBay’s net income totaled $677 million, or 51 cents a share, up from $570 million, or 44 cents a share, a year earlier. Total revenue was $3.75 billion, up from $3.28 billion a year ago. Excluding marketing services and other revenue, the company’s quarterly revenue came to $3.22 billion.

Mr. Donahoe said on Wednesday that he was pleased with the company’s performance in the quarter. “It was a strong first quarter,” he said. “We have strong core businesses and robust scalable global commerce platforms.”